What Is an MCC Code and Why Does It Matter for Business?

Merchant Category Codes (MCCs) are a standardized classification system in the financial industry. These four-digit codes categorize businesses based on the goods or services they provide, influencing how payment transactions are processed for both businesses and consumers.

Understanding Merchant Category Codes

A Merchant Category Code (MCC) is a four-digit number used by major payment card networks to classify merchants. This classification is based on the primary business activity. For example, a restaurant has a different MCC than a grocery store or a gas station.

Payment processors assign these codes when a merchant account is established. While the International Organization for Standardization (ISO) defines MCCs, card networks may adapt them. Common examples include 5411 for grocery stores, 5812 for restaurants, and 7011 for hotels. These codes ensure consistency in categorizing transactions.

How MCC Codes Impact Transactions

MCC codes have practical implications across the payment landscape, influencing merchants, consumers, and financial reporting. They are a significant factor in determining the fees businesses pay to accept card payments and how consumers earn rewards.

For merchants, MCC codes directly influence interchange fees on credit and debit card transactions. These fees vary significantly based on the assigned MCC, reflecting risk level and average transaction size. Higher-risk businesses, such as certain e-commerce operations, may incur higher fees, while lower-risk categories often benefit from lower rates. Interchange fees for credit cards in the U.S. typically range from 1% to 3% of the transaction amount. MCCs also aid fraud prevention and can affect chargeback rates, as some categories are associated with higher fraud risks.

Consumers experience MCC impact through credit card loyalty and rewards programs. Issuers offer bonus points, cash back, or miles for spending in specific categories tied to the merchant’s MCC. For example, a card offering bonus rewards on dining applies them to transactions made at merchants with a restaurant MCC. While consumers typically do not see the specific MCC on their statements, they usually see a category name that helps identify the merchant type.

MCCs are also utilized for financial reporting and tax compliance. They assist with tax reporting, particularly in identifying transactions that might require reporting to the Internal Revenue Service (IRS). For example, MCCs can help distinguish payments for services from purchases of goods. This classification aids in ensuring businesses accurately report their transactions for regulatory adherence.